Tuesday, April 30, 2013

Can "culture" predict economic development?

In this essay, Daniel Altman predicts that China will fall short of the West, because of its "Confucian" culture:

[Unconditional] convergence didn't seem to be happening in many parts of the world [in the last century]...[S]ome countries that appeared to be catching up to the West for a few decades, like Japan, hit a wall before they reached the same standards of living, falling inexplicably short of the target.

In the very long term, [cultural] factors may turn out to be the most important ones [in China's development].

Confucianism is perhaps the leading influence on Chinese business practices...The teachings of Confucius date back centuries, and they are deeply ingrained in Chinese society...Yet some of its central tenets, though they may have benefits at the social level, are not necessarily conducive to economic growth.

Confucian ethics teach that one should value the collective over the individual...A second and related tenet of Confucianism...encompasses the “respect for elders” that is a hallmark of many East Asian civilizations. In Confucianism, this deference belongs not just in family relationships but also between ruler and subject, master and servant, and employer and employee.

Together, these tenets of Confucianism — and the way they have been interpreted by the Chinese authorities in recent times — have helped to maintain rigid hierarchies in Chinese businesses...

There is one other cultural current that runs just as deeply as Confucianism...Chinese people learn a very particular story of the birth of their nation, in which the great struggle through the millennia has been to unite the enormous land mass and diverse ethnicities of China into one nation...The message is clear: to be united and realize the dreams of a great Chinese nation, the Chinese people need strong rulers who brook little dissent.

The message carries through to the boardrooms of Chinese companies, which tend to concentrate the instruments of power in the hands of a single strongman...

All of these factors will combine to lower the target for material living standards in China — or, to put it more technically, they reduce the level of per capita income toward which China is converging. With these factors in place, China simply is not in the same convergence club as the United States...

China may just manage to catch the United States and become the world’s biggest economy. But it will hold onto the title for only a few years before the United States, growing more quickly in both population and the productivity of its workers, passes China again...

[A]s Japan’s example goes to show, holding onto culture — and other deep factors — can keep the limits to growth in place.

This column provides an object lesson in the degree to which using Twitter has limited my vocabulary. I'm struggling to think of a concise description of this essay that does not involve the word "derp".

First, I need to deal with the most glaringly annoying part: the Japan example. Altman claims that Japan failed to catch up with the West. This is laughably false. Here are the 2012 per-capita GDP numbers (at PPP) for Japan and its three closest analogues among the Western nations, the rich, medium-sized, ethnically homogeneous nations of West Europe (source: IMF):

Hopefully, you are convinced that Japan has fully caught up to the West. Its per-capita GDP is no less than the GDPs of the countries that produced Locke and Hume and Adam Smith, Wittgenstein and Kant, Descartes and Voltaire. +1 for convergence, -1 for "culture". Why Altman feels justified in his casual assertion that Japan "fell short" of the West remains a mystery.

Anyway, let's move on to the claims about China's "Confucianist" culture. Just for fun, here are the GDP (PPP) numbers for two other East Asian countries commonly labeled as "Confucianist" - South Korea and Taiwan:

Taiwan: $38,749

Korea: $32,272

As you can see, Confucianism has not stopped these countries from rivaling Western ones in wealth. Taiwan, in particular, is populated by people of the exact same cultural heritage as mainland China, and yet has managed to overtake both the UK and France in GDP. Singapore, a city-state populated mostly by Chinese people, is even richer, rivaling the small countries of North Europe.

Anyway, I could sit here and question every assertion Altman makes about China's "Confucianist" culture - "How do you know that's culture and not institutions?" "Where's your data?" "Have you even ever worked in China?" - but I think the Taiwan and South Korea GDP numbers do the trick. I rest my case. +1 for convergence, -1 for "culture".

This clearly illustrates the perils of engaging in what I like to call "phlogistonomics" (a term coined by Matt Yglesias). The method goes like this:

Step 1: Take some hard-to-understand phenomenon, like economic growth. Explain the parts you can explain with standard economics (capital, labor, prices, etc.). What's left - the part that really drives the model - is the phlogiston.

Step 2: Label the phlogiston. Make sure you choose a name that refers to something people in general already believe in. "Culture" is great. "Confidence" works too, as do "institutions", "technology", "power","the true desires of the Fed", and of course, "irrational expectations" (the favorite of us behavioral finance types, hehe).

Step 3: Act like you know exactly how the phlogiston behaves. Predict its effects based on commonly held national/ethnic/gender stereotypes ("Greece is in trouble because Greeks are lazy!"), or your political beliefs ("Obama the Kenyan Muslim socialist is killing business confidence!"), or any plausible-sounding story that plays to popular prejudices, preconceptions, fears, or hopes.

Yes, in the end, conventional wisdom and stereotypes and politics end up driving the model. But along the way, your careful selection of like-minded sources, and your authoritative tone, allow you to seem really wise and sagely in front of an audience of people who were primed to believe your conclusion.

Unfortunately, you may run into a problem: Someone may use the same phlogiston, but different assumptions, to reach the exact opposite conclusion. Scott Sumner, for example, believes that China's culture is precisely what makes its catch-up to the West inevitable:

Like Japan, like Britain, like France, indeed like almost all developed countries, [China] will grow to be about 75% as rich as the US, and then level off. It won’t get there unless it does lots more reforms. But the Chinese are extremely pragmatic, so they will do lots more reforms...

If we want to learn from the Chinese culture, learn from Singapore(or Hong Kong), which is how idealistic Chinese technocrats would prefer to manage an economy; indeed it’s how China itself would be managed if selfish rent-seeking special interest groups didn’t get in the way. But they do get in the way—hence China won’t ever be as rich as Singapore; it will join the ranks of Japan, Korea, Taiwan, and the other moderately successful East Asian countries...

I expect China to end up in the “normal” category, mostly based on its cultural similarity to other moderately rich East Asian countries.

Altman, you have met your match. Now all we, the readers, have to do is decide which of these European-Americans has a deeper, subtler understanding of the Chinese culture, and we'll know which one to believe!

(For the record, I'd go with Sumner. Also, Chinese culture seems a lot like American culture to me, but that's mainly based on my students, who of course chose to move here. If I had to predict, I'd say China will reach 50% of U.S. GDP, but that equaling us will be hard because of global resource constraints.)

Of course we could always admit that, well...we don't really know what's going to happen to Chinese growth. But we don't want to admit that. Because we don't like to not know things. Not knowing things is scary. There is safety in derp.

Update: Altman responds, noting that Japan's GDP is markedly less than that of the U.S., Canada, and Austrialia. Of course, I could have pointed out that Singapore, with a GDP (PPP) per capital of $60,410, is considerably richer than any of the countries named. But I thought it more appropriate to compare countries of similar population sizes and resource endowments...

Well, China is going to run out of coal, water, cropland, and other resources because of its huge population and poor resource endowments (Japan & Korea & Taiwan have this problem too, but they can import stuff easily, while China's population is 1/5 of the world total). Its oil imports will bump us up against global supply constraints and make the price spike up (this is already happening). And China will get old much faster than other developed nations did; its workforce is already shrinking in size. So those are the resource constraints I'm thinking of.

"China is going to run out of coal, water, cropland, and other resources because of its huge population and poor resource endowments"

What does China care about coal? They are already leading the world in nuclear power plant research AND construction. Coal will be well on it's way out in China by 2030.

Water? That's just a matter of water treatment infrastructure and/or river pollution in a country like China (i.e. it not entirely arid like Saudi Arabia). Worse comes to worse they can always desalinate, or grow less water intensive crops, or use less water intensive industrial processes.

Cropland? I guess this has the most merit. I really don't see how they have a fundamental problem though, even with current crop yields. But if you need to increase crop yields, there is plenty of room for improvement via GMO & land efficient growing methods (e.g. green houses).

Cropland isn't too big of a constraint when you consider vertical gardens. An investment in vertical gardens would also alleviate pressure on infrastructure because they would allow significant food production within the cities.

I think China has already acknowledged the threat of clean drinking water due to their farming practises and water intesive crops, this will not be an issue in the future as long as they have the monetary resources to purchase water.

With regards to Coal, it soon will be gone not only due to china's nuclear investments but also because they sit on the largest reservoir of shale gas in the world, much larger than that of the US. Also much deeper engraved within the earth, so it'll take a bit more time for their shale gas boom to come but in time it will come. All they need is the technology to dig too deep and extract that gas out of the rocks, they already have the authoritative system to evict people from areas with potential shale gas resources underneath anyway, so that wouldnt be a huge problem either.

on confucianism, i think if any, it's one of the reasons why chinese people have a strange motivation to work hard. The idea behind it is that collectivism, good of the masses is indeed the prime motivation to work and develop and not money as it is the case in western societies (at least not the prime motivation). See, it would only happen that their culture would hinder economic development if the prime motivation of people to produce is economic power (money) or authoritative power. in confuciansim one of those is excluded, economic power isnt the prime motivator for individuals and groups to work or develop, hence individualism wouldnt spur better output but hinder it as the prime motivation is collective wellbeing.

The impressiveness is in part because people out of the workforce tend to be dominated by people you'd expect to be less productive (eg the less-educated, and note this is not a statement about every individual, bad luck plays a role in anyone's life). So all else being equal, we'd expect productivity per hour worked in somewhere like France to be higher than productivity in a country that employs a lot more people.

Or, as a very non-PC workmate of mine once put it, "How do the Americans get such great productivity while hiring morons?"

I could see China getting stuck at a point where they have to privatize most of the SOEs and reform the banking system to get further growth, and then getting slow growth from that point unless there's a Taiwan- or Korean-style shift to actual democratic governance. It's harder to do the Japan "everything outside of our export sector is quite inefficient by Developed World standards, but it's okay!" thing when you're that large (Korea only pulls it off because the "export sector" is just so freaking huge - Samsung's revenue is equal to one-fifth the Korean nominal GDP).

Altman is out of synch with most current lit on this. While traditionally Confucianism was viewed as being anti-commercial, since an essay in 1979 by Herman Kahn, of all people, it has been recognized that there are many elements in Confucianism that are conducive to economic growth, most importantly its respect for education. There is a discussion of this matter with applications to several nations in Comparative Economics in a Transforming World Economy, by me and my wife, 2nd edn., 2004, MIT Press. Indeed, that Confucianism may aid economic growth is probably the cliche that is now overstated by many, not this silly argument by Altman.

When you do the cross-country growth accounting (i.e. account for as much variation in GDP per capita as possible via capital, prices etc) one finds the residual accounts for most of the variance (e.g. World Bank, 2011). This is not to say that one should just make stuff up to explain the residual (steps 2 and 3), but if, as economists, we are interested in the nature and causes of the wealth of nations then we need to focus on the "soft" stuff as that is what explains most cross-country variation.

"Step 1: Take some hard-to-understand phenomenon, like economic growth. Explain the parts you can explain with standard economics (capital, labor, prices, etc.). What's left - the part that really drives the model - is the phlogiston."

Kind of a weird distinction, IMO. It's all phlogiston. The standard economics are phlogiston too, just accepted phlogiston.

That said, if we can somehow replace the name "Economics" with "Phlogiston" I am 100% in favor of that idea.

I think when Altman said "West" he specifically means America. I don't think Western Europe is particularly rich or developed. (versus what I call the European-offshoots, of Canada, Australia, and America). The only European countries that have comparatively high GDP are Norway and Luxembourg. Norway is basically just oil exports and Luxembourg is small as hell.

Let's talk about standard of living. America has the highest HDI behind only I think Australia and Norway. The worst state in America in terms of HDI, Alabama, is ahead of both the UK and France. The Western Europeans basically have a natural rate of unemployment equal to our current situation.

There's nothing great about "catching up" to Western Europe. People forget how rich America is, especially for a country of its population with a sizable number of poor immigrants. The real test for a country like Japan would be to hit the 50k per capita mark.

And why his point has some salience viz. Japan is that many economists circa the End of History (remember the good ol' days?) thought that Japan would supersede America in living standards and per capita wealth. Never happened, and never will.

I think China has one other big problem, which is the RMB will never become a reserve currency. Unless it fully democratizes in an American or European sense. While deeply liquid bond markets are one factor for reserve currency status, it's equally important that a universal electorate owns an equitably distributed share of government debt.

America can't default, ever, because politicians would be thrown out of office. Default is not subgame perfect of the US (or Europe), it (might be) for China. China will also not be able to spend as much on military upgrades in the next era as it hopes. America can afford to spend huge amounts because living standards are good. China as a country is big, but its people are poor and it will become more politically sound to focus on local development than global projection of power.

China is living through an ephemeral stage of nationalism that lets it spend unnatural resources on hard power.

Of course, none of this has to do with "Confucian" roots. And anyone who thinks per capita GDP of any significant country (India, China, etc.) will exceed the US is nuts. The only countries that will ever be richer than the US are small trade hubs like Singapore or Hong Kong (irrelevant) and export-driven economies like Norway and Australia.

Haha picking Detroit is so selective. Just look at the GDP. Or HDI. Or natural rate of unemployment. Or innovation.

It's quite amazing a country of 315mn is so high in per capita output. US is at 50k. UK is at 35k. France is about the same.

You can pick and choose what you want, but when someone says "rich country", America and Norway come to mind. Not Europe. (I don't really consider Scandinavia part of Europe, and they have a very business-friendly attitude which helps).

According to http://data.worldbank.org/indicator/NY.GDP.PCAP.CD?order=wbapi_data_value_2011+wbapi_data_value+wbapi_data_value-last&sort=deschave the following European countries a higher GDP per capita than the US:Monaco, Luxemburg, Norway, Switzerland, Denmark, Sweden, Netherlands, Austria and Finland. Countries that have a GDP per capita that is less than 10% less than the US: Ireland, Belgium, Germany, Iceland and France.

Considering that the people in all of these countries have at least 4 weeks of paid leave, your claim that the Western Europe isn't particularly rich compared to the US is just plain false.

The IMF data I refer to has Qatar, Luxembourg, Singapore, Norway, Brunei ahead of the US. Notice that not a single one of these countries is in western Europe.

Now you want to take your data? Monaco is too small to even count. Norway, Finland, Denmark, and Sweden are not in Western Europe. IMF has USA at 49k and Sweden at 41k, so your data is surprising.

The other countries aren't even bigger in most data sets, but regardless are puny in size. Luxembourg's population is 500,000. It's like a rich little neighborhood in Europe. There are plenty of neighborhoods in America (lets do Manhattan) that trump the 70k it pulls but are the same size.

If you want to make an argument, stop citing countries smaller than a mid-sized town.

To Reason: tell me how a reserve currency is not an advantage? When there's such demand for dollar-denominated debt it's highly likely we can take expansionary monetary policy to its limit without facing consequences. It gives us immense global power. But hey, I'm only "making a fool of myself".

"And saying there's nothing great about catching up to Germany or the UK is a completely absurd statement. Brazil or Mexico or India sure haven't managed it."

Nothing great vis-a-vis predictions at the end of the cold war. People used to say that the Cold War is over and Japan has won. A not insignificant number (and quality) of people told us Japan would be the next superpower.

"As someone who has lived extensively in both the US and in Europe, I can confidently state that anyone who believes that the standard of living is lower in Europe than in the US is nuts."

People who live there have told me otherwise, but I suppose it's not as clear as I've made it. I will note W Europe has had chronically higher unemployment than the US which is very indignifying for the people who have to suffer through it.

Yes. insurance there is much stronger, and perhaps you can live a decent life unemployed, but it's not a good position to be in.

And if we measure development in innovative output and scientific research, the point is moot, the US is so far ahead it's not even worth counting.

Ashok, if your data is different from the one I link to, why don't you provide a link to your sources.

As a Swede currently living in the US, I can quite confidently say that the standard of living is higher in Sweden than in the US. Here I take into account things like income, access to healthcare, social security, infrastructure and working hours.

Also, as a Swede, I can quite confidently say that Sweden is considered a part of Western Europe. The other countries too. Or do you want to put them in Eastern Europe and claim that the standard of living in some Eastern European countries are higher than the both Western European countries as well as the US?

Finally, since you complain that some of the countries I list are small, I have to point out that the total population of the countries I listed are 222 million.

The total might be 222 mn, but that's weighted heavily by the poorer countries in the list like France. Also, US is 315mn, quite a bit more.

If you want to compare Europe as a whole and US, it has a population about 60% greater than America and a GDP about 5% greater. Again, the only countries actually richer than the US are small. (city states, or things like Luxembourg – Australia in some estimates might be the exception, but again export-driven).

The Swedes I know shy away from being considered part of W Europe, because the Nordic economic model is so superior to the bloated welfare systems in Western and Southern Europe. I wouldn't call it part of E Europe, just Scandinavia.

Your data just support what I say. The data you linked to, actually showing GPD per capita in comparable units: http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/weorept.aspx?sy=2011&ey=2018&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=40&pr1.y=3&c=193%2C542%2C122%2C137%2C124%2C181%2C156%2C138%2C423%2C196%2C935%2C142%2C128%2C182%2C939%2C135%2C172%2C576%2C132%2C936%2C134%2C961%2C174%2C184%2C532%2C144%2C176%2C146%2C178%2C528%2C436%2C112%2C136%2C111%2C158&s=NGDPDPC&grp=0&a=

Even though the Scandinavian countries are small compared to the US, they are far from "city states". Sweden has a population of 9.5 million people and a GDP per capita of USD 55,157, compared to US GDP per capita 49,922.

Australia is not a European state. The population of Austria is 8.4 million.

I think I know quite a bit more Swedes than you do, and as I said, we do consider us being a part of western Europe. We also have the biggest welfare state in the world, which we are quite proud of.

I'm sure you know a lot more about Sweden than I do. And I'm sure the Swedes I know will say the same thing. So to me it's he said she said, and I'm with them, until you can convince me otherwise. Robert Heilbroner (and many other eminent economists), of course, considers the Nordic model to be distinct from W Europe. You can do what you want about that.

Even in PPP, the data support my point: http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita

IMF is the most recent, as you can see.

Australia isn't a European state, I never said it was. I do consider Canada, Australia, and the US to be "Euro offshoots" that eventually developed their own models. Each is richer than W Europe. Australia mostly for exports, so we can discount that.

"America can't default, ever, because politicians would be thrown out of office. Default is not subgame perfect of the US (or Europe), it (might be) for China. China will also not be able to spend as much on military upgrades in the next era as it hopes. America can afford to spend huge amounts because living standards are good. China as a country is big, but its people are poor and it will become more politically sound to focus on local development than global projection of power."

I would bet against America defaulting (and am doing so with my money), but the probability of dumb-f*ck default is frighteningly high. We've got a party which likes flirting with it, and a financial sector which is heading right back to weapons of mass destruction, and that same party is likely to botch the next meltdown............

GDP per capita is higher in USA then it is in EU and it really does not matter whose numbers you use (OECD, World Bank, ...), the difference is quite big. The catch is that GDP per capita is just one indicator of how nice is a place to live in. There are so many others and you can pick one you found most important for yourself or one which supports best your nationalistic pride.

Even taking this bias into account western Europe is probably the best place to live in on this planet. Many important indicators such as infant mortality, murder rates, social mobility are much better in western Europe then in the U.S. One example: http://www.savethechildrenweb.org/SOWM-2013/#/70/, but there are many others.

(I have never lived in USA or in western Europe so this entirely based on statistical data and on zero experience with these places.)

P.S.: Luxembourgh's very high GDP per capita is statistical illusion. Many workers who contribute to Luxembourgh GDP are not Luxembourgh citizens but commute from neighbouring countries. Luxembourgh has population cca 300 000 and is a very tiny country. Similarly inadequately high GDP per capita are usual for cities (e.g. Inner London) where many workers commute from outside administrative boundary of the city.

These are all myths, kind of. Disparity in the preindustrial era was basically non-existent. Basically Malthusian constraints dominated economic life.

China was the first country, arguably, to have a strong and consolidated state under the Qin dynasty (though that fell shortly after ascendence to power because of how domineering the rulers were... Shang Yang is one crazy dude).

So while development of political systems might be divergent, no country was really that much richer than others in terms of general living standards. Perhaps the Chinese or Indian rulers of a past era lived very well.

Also, this may not apply to particular cities that were crucial to trade (Baghdad, Alexandria, etc.) which might have been demonstrably richer than the rest. But economically, countries are basically equal until the 15th century (when the Mings basically screwed China) when rule of law and scientific enlightenment blessed Europe. This led the industrial revolution and the rest is history.

This is very simplified, of course, but pretty close to the truth I think.

I enjoy this blog very much, but find this post a bit irritating. Yes, Daniel Altman's discussion is sloppy. Then again, Noah linked culture to economic development here: http://noahpinionblog.blogspot.co.uk/2013/04/will-abe-address-japans-number-one.html

If it weren't for somewhat sexist Japanese cultural tendencies, women would proliferate far more in the Japanese workplace.

How recent is the conformism in Japanese corporate culture? I've heard from a professor who lived over there for a couple of years that it's actually quite recent - pre-World War 2 Japan was more individualistic.

Altman's discussion is simplistic. Fukuyama's 1995 book Trust: the Social Virtues and the Creation of Prosperity looks at various cultures including China, Korea, and Japan and discusses the various ways social capital is created. There's lots to argue with Fukuyama but the overall discussion if much more thoughtful than Altman's.

OK, I haven't read Acemoglu's book, but would he have been able to predict in 1960 that the autocratic dictatorships in Taiwan and SKorea (elites-supporting dictatorship, in the case of SKorea) would end up doing so much better than the autocratic dictatorships in Latin America and Africa?

Couldn't agree more. In particular his work (with several coauthors) on the growth distance from the technological frontier says the most about this issue (even more IMO than "Why Nations Fail). Once China nears the technological frontier, I think they are going to have great difficulty.

I am not so sure anyone can very well predict the regime switching they are arguing that must take place. I would say that in hindsight it does appear like more inclusive institutions developed in Taiwan and SKorea than in say China. More inclusive institutions would permit the creative destruction necessary at the technological frontier.

How do "more inclusive" institutions develop? What are they? Why did they develop in Taiwan, SKorea, & Singapore than in other tinpot dictatorships? Remember that economic development took off before democracy took hold in those countries. Why would you say "more inclusive" institutions won't develop in China?

One thing is that mainland China was afflicted with Communism, which is a particularly pernicious, twisted form of totalitarianism, but other than that reason, why wouldn't China go down the path of Taiwan?

Employment ratios are very different across countries, those numbers dont help.

Gdp per hour worked based on commonly used PPP is higher too in the US, albeit less. Singaore is the country that falls wayback based on hour worked gdp. No matter how one turns the numbers - hour worked, gni instead of gdp whatever , unless ppp conversion is way off (which has been argued too) the numbers are better.

Still, the US manages to make lifing standards lower than in Western Europe in lots of stupid ways that are not reflected in gdp. Gdp is not all. The US just recently managed to have a higher life expectancy than Cuba, Greece is still way ahead......

I hate to admit it, but I am actually not an Iain M. Banks fan. I slogged through Consider Phlebas and regretted it, listened to Player of Games at the gym, and tried Use of Weapons, quit it 40 pages in, and gave it away...

I can understand that. I liked it as space opera (and because I'm a total world-building nerd), but I could see how it might not appeal to everyone.

I think I remember you praising Vinge's stuff on twitter. I'm giving Vernor Vinge's Deepness in the Sky another try, but the last time I read it I could barely get through the parts that weren't flashbacks - eventually I was skimming them, because what really interested me was Pham Nuwen's back-story and that amazingly claustrophobic interstellar civilization.

I completely agree: I had a similar experience except I persevered all the way through Use of Weapons. The fact that I (and you) don't enjoy Banks is one reason I thought it would have made a good image.

Of course if more people were working the same hours there should be a higher GDP per hour because hours probably have a higher marginal product when coming from other people instead of overworked people at this point. But I doubt this would make Japan that much better.

GDP per hour is half american GDP per hours. This is a really big gap.

But when you compare to other developeds is quite weak. The thing is lower working hours in Europe make they seen poorer than they are. They are quite richer than Japan. Japan have not converged to France or Germany level, he has converged to Italy level. Not that this is bad. Italy is quite rich. But is less than people assume.

Well, I'm not sure this is true...if Japanese people worked fewer hours, their GDP/hour would go way up. A lot of what they do at "work" is go out and get drunk, or sit around and wait for the boss to leave.

I wonder how much something like this might be happening in Italy. But I digress.

I never seem any relevance diference between "culture" and "institutions".

I see your point. But i guess "The problem is just that the time they spend at work is tremendously inefficiently spent" is not an argument agains the point that the time they spend at work is spent in a tremendously more inefficent way than in western europe.

I agree with you. But this is exacly why they are poorer than europeans, they are compeled to waste their time doing stupid things, so they don't have leasure, nor more production. I don't feel this as a distortion of the statistics.

I think Arthur has hit the nail on the head. Except you should probably control for capital as an additional factor of production. To my recollection productivity once these things are screened out is significantly lower than most of the rest of the developed world (about 70% or something). Observationally, I would have no doubts at all about attributing that to cultural causes. In fact I'm not even sure how else you might choose to explain it.

Well - maybe you state your definition of culture, then tell me how it wouldn't be the best culprit for explaining that productivity gap. I guess you might draw a line between 'culture' as a long-term, society-wide thing, and 'working habits', as current practices in the business world. But presumably if you believed in that distinction, you wouldn't have cited the GDP figures as evidence in the first place. And my own personal view would be that in the case of Japan, the former explains the latter, anyway.

So how does Altman explain (southern) Han Chinese being overrepresented among the economic elite (and in general, dominating the economy) of every country where they make up a significant percentage?

Also, does Altman actually know any Chinese people? I'm thinking of this passage:"In Confucianism, this deference belongs not just in family relationships but also between ruler and subject, master and servant, and employer and employee."

Yes, Chinese hold family to be very important, but deference of the servant to master & employee to the employer? Has he seen the rate of job-hopping in China?

If the Chinese like to concentrate power, how come it seems like every third person in Taiwan owns a business?

He's akin to a guy who thinks he understands the sociology of (all the) modern Christians in America just because he read the Bible.

Here's a phrase that it would behoove Altman to get acquainted with:http://en.wikipedia.org/wiki/Tian_gao,_Huangdi_yuan

China has always been massive, heterogeneous, and hard to control, with the result that Chinese tend to be just as independent/individualistic/alike as Indians and Americans.

His broad stereotyping may apply better to the Japanese or (maybe) the Koreans (I can't be the only person to think that Chinese and Americans tend to share more characteristics than Chinese and Japanese), but frankly, I don't trust this guy to provide insights on much of anything.

Thanks, Noah: I was going to recommend (w/ ref to "I'm struggling to think of a concise description of this essay that does not involve the word "derp".") that you trust your instincts, but as has been all too common these past few weeks, I'm a day late and about a buck and a quarter short.

I am much less impressed with how wonderful the United States is than e.g. Mr. Rao. Take HDI (Human Development Index), for example. Looking at the inequality-adjusted HDI the United States drops in rank from third to sixteenth. What's so wonderful about a country in which most of the population never sees the benefits of its supposed advanced status?

The numbers I've seen indicated that European productivity per hour is at least on a par with that of the US. I regard their apparent decision to take a substantial part of their higher income in the form of increased leisure as entirely sensible.

Moreover, IMH the inequality-adjusted HDI overstates the position of the US. It fails to take into account the issue of security vs uncertainty in e.g. medical care, which happiness literature indicates is substantial.

Right. I would say that if you can be in the top 1% in a remunerative field or in entrepreneurial spirit (or simply are born rich), the US is the best place in the world to be. If you're in the top 10%, you can probably make more money in the US than anywhere else in the world, but you may not feel as secure as other folks in your position in other countries. If you're in the bottom half, that's not so true.

Having lived in China, I used to think that Confucian culture would hold back development; but then I saw the characteristics of successful office workers, and became less sure. I do think our culture is morally better, though.

These are not cost-of-living adjusted. Switzerland and the US become pretty equal after normalization. Check out: http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita

for a much better estimate. Norway is the only one that stays relatively rich. When it comes to total GDP, I'd say PPP is irrelevant (in most discussions of market power etc.) but for per capita it's what really matters.

If you define tax evasion aka "financial services" as industry then Luxembour has lot of heavy industry, otherwise, thats not whats driving luxembours gdp -_-. The thing that drives Luxembourgs gdp so exorbitant high are commuters from other countries whose wages are counted to Luxembourgs gdp and divided through the population that lives there. Irelands gdp numbers are also meaningless and much lower than gni since so much fake revenue is booked there. Some other nations do notably better on a gni basis, but the distortion is no nearly as big as in the other direction in Luxembourg or Ireland. For example German gni is some 2% higher (i noticed yesterday thanks to getting better through the crisis, west German gni is now ahead of all EU nations expect luxembourg on a ppp basis). In Switzerland the effect should be more substantial but in Switzerland there is again the question of meaningfulness due to tax games -foreign billionaires living or pretending to live in Switzerland to avoid capital gain taxes.

"Daniel Altman believes that the most powerful ideas in economics are also among the simplest."

I say that anyone who really believes this cannot be taken seriously. At the same time, I need to emphasize that even phlogiston theory served a purpose. As Wikipedia states, it

"permitted chemists to bring clarification of apparently different phenomena into a coherent structure: combustion, metabolism, and configuration of rust. The recognition of the relation between combustion and metabolism was a forerunner of the recognition that the metabolism of living organisms and combustion can be understood in terms of fundamentally related chemical processes"

So the study of the Solow residual and its relation to the quality of institutions, culture, and so on has its merits, provided that it is systematic and not reduced to story-telling about cherry-picked observations.

Let me pound the point again since not a single one of you got it and none of you seems to know the lit worth squat. This is a bad paper out of synch with the established lit. Altman lists a bunch of papers and books in his References, but fails to cite a single one of them. I do not think China will catch the US in per capita income, but it is not because of its Confucianism, and indeed there is a substantial literature that Confucianism may aid economic growth on various grounds, again, particularly because of its emphasis on education, but also for other reasons as well, even if traditoinally it was anti-commercial (and North Korea is highly Confucianist in certain ways).

Are there certain religious beliefs that impede economic growth? At least then we could talk about Islam's prohibition of all modern finance and much of what the rest of the world calls entrepreneurship (OPM)!!!

Not that culture can't possibly be related to growth (who the hell knows), but I don't think that westerners are the best judge of that.

First, they're steeped in their own culture, so they're not objective judges.

Second, they love to think their culture is superior to all others in every way possible, so they're prone to bias in favor of that culture.

Third, the westerners who like to judge and compare cultures tend to be fairly lazy and would never actually study, say, Chinese culture before making pronouncements of its potential for development. The westerners who actually do study cultures (let's call them... sociologists) tend not to make such sweeping statements. It's something that comes with knowing stuff about a topic.

For anyone interested, I have some thoughts on this here: http://ashokarao.com/2013/05/01/china-got-99-problems/

If anything, I think Confucianism has kept tempered statism. But to the extent it is regressive, there's nothing urbanization and globalization ($$$$) won't solve. Comparing the preponderance of castism in urban India between recent migrants and long-time city-dwellers is an interesting corollary.

One of China's many problems is that the state, not the private sector, is taking the lead role in directing investment. While the private sector is disciplined by profits and losses, the state faces no such constraints, short of all-out economic collapse.

"Since the start of capitalist reforms in the 1980s, China excelled by throwing tons of resources into a modernizing economy — mountains of cash to build factories, roads and apartment towers, and millions of poor people into making iPads, blue jeans and cars. Under China’s “state capitalism,” bureaucrats often directed the cash into massive infrastructure projects or favored industries."

And I think this ties in very well with your resource shortage story, Noah. The Chinese state is massively subsidizing inputs for steel, shipbuilding, cars, and other resource-intensive heavy industries. In the absence of such intervention, more accurate prices signals would likely have compelled firms to follow a more sustainable path. When the subsidies are phased out--as they inevitably must be--the entire structure of the economy will have to shift abruptly.

There have been studies by Voigtlander and Voth (2012), Alesina and Giuliano (2011), and Doepke and Zilibotti (2008), which show that culture affects a variety of outcomes: violence, political participation, female labour force participation, etc. A good summary of these issues is in Nathan Nunn's paper "Culture and the Historical Process."

So the evidence thus far suggests that culture has a role to play in economics.

Yes, I agree that culture has some role in economic success, but someone who's trying to argue that _Chinese_ culture impedes economic success has to explain how Han Chinese have done disproportinally better economically than the native population pretty much eveywhere they have immigrated.

Also, it's hard to tell, (except over the very long-term) whether a charactersitic is good or bad economically.

For instance, the Japanese are probably the most collectivist people I know of. That has preserved social harmony & freedoms despite a gigantic economic crash that, in relative terms, was far bigger than the Great Depression. Yet that same collectivism (I didn't realize before marrying my wife that "the nail that sticks up gets hammered down" was an actual common Japanese expression) is not conducive to game-changing innovation. Yet being the most detail-oriented people I know of (I don't know many Germans) has led them to acheive a supreme level of high quality in the products they produce. However, they are also the most socially conservative society (in terms of the societal superstructure) I know of. That has led to lower birthrates, virtually no immigration, and demographic decline.

Whenever someone starts discussing "culture" as a barrier to development, you're almost certainly seeing the same arguments that used to made about "race." I mean, the EXACT same arguments, just with "culture" substituting for race.

This particular argument goes back to the Banfield-Bellah debates over 50 years ago. The moral bases of backwardness, QED.